Mid-Market Update: Still probably a bear market rally, Oil prices are staying alive, Russia gives up on gold

US stocks are seesawing after the Fed launched a new repo facility, the White House signaled a fourth stimulus plan is being worked on and President Trump’s hope for a $2 trillion infrastructure deal.  Trump’s revival of an infrastructure deal will likely fall on deaf ears as partisan politics would push this back until after the election.  Wall Street’s mood was also dampened after the coronavirus pandemic saw fatalities surge in New York, while Spain records highest jump in deaths.  It is becoming obvious that lockdown measures around the world will need to be extended and that will likely make everyone’s GDP decline forecast a little uglier.  Despite today’s stock market resilience, this is still probably a bear market rally.  The economy will take a lot longer to restart and the impact onto the American consumer will be lasting.     

FX

The dollar initially tumbled against its major trading partners following the announcement of the Fed’s new short-term lending program for foreign central banks. This repo facility should last about six months and help smooth out the performance of financial markets.  This new facility is another one of the laundry list of items that support a weaker dollar, but that probably won’t happen until markets feel confident the worst is over with the coronavirus pandemic.  The flight-to-safety should keep the dollar bid over the next few weeks. 

Oil

Coordinated oil production cuts will happen, but probably not as fast as Texas needs it to.  The Saudis are finally winning back market share and they won’t want to do a massive U-turn just yet.  There will come a point, when the Saudis will play ball, but for now, energy traders will have to just settle for speculation that something will come out of talks between the US and the Russians.

Oil is potentially near a bottom and it will start to show further signs of life if oversupply concerns ease a little.  Until markets can start to understand how bad the demand shock will be since practically the whole world is on lockdown, most oil rallies will get faded. 

Gold

Gold prices are softening as central bank demand seems to be faltering.  Russia, the world’s largest purchaser of bullion decided to halt bullion purchases, showing they are feeling the pain of low oil prices.  Russia will likely be a seller over the next few months and that will put a dent in the overall bullish outlook for gold prices.  Over the past five years, Russia has acquired over $40 billion in gold holdings.

Gold should still perform well over the next couple months as central banks continue to throw every stimulus measure they can to ease the impact of the coronavirus pandemic to the global economy. 

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